The Mathematics of Money

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Learning Objectives

LO 1 Understand the concept of the time value of

money, and recognize the reasoning behind the

payment of interest.

LO 2 Calculate the amount of simple interest for a

given loan.

LO 3 Use the simple interest formula together with

basic algebra techniques to fi nd the principal,

simple interest rate, or term, given the other

details of a loan.

LO 4 Determine the number of days between any two

calendar dates.

LO 5 Apply these skills and concepts to real-world

fi nancial situations such as promissory notes.

Chapter Outline

1.1 Simple Interest and the Time Value of Money

1.2 The Term of a Loan

1.3 Determining Principal, Interest Rates, and

Time

1.4 Promissory Notes

1.5 Non-Annual Interest Rates (Optional)

Simple

Interest

1.1 Simple Interest and the Time Value of Money

Suppose you own a house and agree to move out and let me live there for a year. I promise

that while I’m living there I will take care of any damages and make any needed repairs, so

at the end of the year you’ll get back the exact same house, in exactly the same condition,

in the exact same location. Now since I will be returning your property to you exactly the

same as when you lent it to me, in some sense at least you’ve lost nothing by letting me

have it for the year.

“And why do they call it interest?

There’s nothing interesting about it!”

—Coach Ernie Pantuso, “Cheers”

CHAPTER

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